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Moratorium: Supreme Court breather for distressed borrowers

The Supreme Court on Thursday ordered banks not to declare any loan account non-performing asset (NPA) if it was not so on August 31 when the loan repayment moratorium scheme announced by the RBI ended.

“The accounts which were not declared NPA till August 31, 2020 shall not be declared NPA till further orders,” a three-judge Bench led by Justice Ashok Bhushan said in an interim order.

The court issued the order after Harish Salve, representing the Indian Banks’ Association, submitted that no account shall become NPA at least for a period of two months. The order protects those accounts from being declared as NPAs which were not NPAs as on August 31.

The protection from being declared NPA for such accounts will continue till the petitions seeking interest waiver on loans during Covid lockdown were disposed of, it said posting the matter for further hearing on September 10.

While passing the interim order, the Bench, which also included Justice R Subhash Reddy and Justice MR Shah, noted that borrowers needed to be protected. Solicitor General Tushar Mehta, representing the Centre, tried to convince the court as to why interest has to be kept alive in order to save banks.

Mehta said banks were free to deal with borrowers and offer them solutions depending upon their specific problems and needs. A one-size-fits-all solution can’t be granted due to the difference in difficulties faced by different categories of borrowers, he said. However, the Bench said the RBI needed to issue certain directives to deal with the situation.

“What you do, that’s for you to decide. Certain things have to be decided by the Government of India and the RBI. Everything can’t be left to the banks,” the top court said.

During Thursday’s hearing, the Bench made it clear that it was mainly considering two issues — if banks should be charging interest on interest and if the National Disaster Management Authority under the Disaster Management Act can provide relief with regard to loan repayment in disaster situations.

Announced by RBI in March for three months, the loan moratorium is a legal authorisation to debtors to postpone payment of EMIs. It was later extended to six months till August 31, 2020.

The RBI and Centre maintained that a complete interest waiver was not possible as banks too had to pay interest to depositors. It had said forced waiver of interest would jeopardise the financial health of banks.